ARE REAL ESTATE PRICES IN COLOMBIA OVERVALUED?

It seems somewhat repetitive, but it’s inevitable that we continue to discuss this issue. Journalists in Colombia criticize themselves because the only subject they write about in their columns is President Uribe. Likewise, as entrepreneurs, the most talked about subject is the current financial crisis. The typical question posted on any forum is: To what affect will the global crisis have on the Colombian economy? Some say that there will be no affect; others say there will be a small amount of affect and so on. I believe that it definitely does have an affect, for the simple reason that Globalization arrived some time ago and for better or worse our country is riding that wave. The measure of damages, according to each sector, will depend on the way you look at it. As for the real estate sector the question is: How will all this global Pandemonium affect the Colombian real estate market?

A way to analyze this is by looking at whether the prices of our properties are high compared with those from other parts of the world.

Coldwell Banker has published the 2008 HPCI report (Home Price Comparison Index) which compares the value of real estate prices in the U.S. to other markets in the world. Unlike other housing reports, this study “provides an apples-to-apple comparison of similar 2,200 square foot (about 200 sq meter), four-bedroom, two-and-a-half bath homes in 315 markets across the United States, in addition to Puerto Rico, Canada and a sampling of countries/territories outside of North America where Coldwell Banker has a presence.”1

Taking the average home price in some US and international cities and assuming an average exchange rate of COP $ 2.000 per US dollar in comparison with our Colombian market the following points were noted:

Colombia remains among the top countries in the world with the most affordable homes. In Bogota the average price is $1,785,000/m2. In 2007 it held the top spot as the country with the least expensive real estate in the world. This year it came in fifth place passed by Quito, Ecuador - the most affordable of 2008 – along with San Jose, Costa Rica; Hanoi, Vietnam; and Panama City.

In the United States the most expensive real estate per square meter is in La Jolla, along the Californian coast, at $17,870.000/m2, which is nearly double the worth per square meter of a commercial shop in the most expensive mall in Bogota.

In comparison, the most affordable real estate in the US is in Sioux City Iowa at $1,335.000/m2 equal to the average price of a middle class home in a city such as Pereira or Ibague in Colombia.

According to the Coldwell study, the most expensive place in the world is Dubai - $ 24 million pesos per square meter! – No comments needed.

Despite the increase in value of properties in Cartagena in the last few years (with an annual average above 20%), at $2,650.000/m2, it is still far below other Caribbean destinations like Aruba at $3,340.000 and Nassau in the Bahamas at $ 5'070.000, but higher than direct competitors like San Jose, Costa Rica at $1,420.000 and Panama City at $1,580.000/m2. This is an important point to keep in mind if the government wants to compete with these destinations and encourage foreign investment through the “Second housing” law.

With respect to other developing countries where the real estate market has been booming in recent years such as: Romania, Hungary and Turkey, Bogota and other cities are about half the price of these countries becoming a very attractive market for foreign investors.

An interesting comparison:

Barack Obama lives in Chicago where the average price is $8,630.000/m2, while John McCain lives in Phoenix with an average price of $ 2,880.000/m2. It's like comparing Obama living in an exclusive Penthouse in Cartagena and McCain in an apartment at the Chico in Bogota.

It is easy to deduce that real estate prices in Colombia are low, not only globally but in all of Latin America. And they have remained that way despite the current financial crisis. Similarly, the decrease in the dynamics of the local market have been driven more by domestic factors than by external economic factors such as the current ones. There is easy access to mortgage credit and builders are more cautious when initiating new projects. Also, the market has entered a period of adjustment that has helped to scare off any speculative behavior.

One final thought: My grandfather used to say, “The land does not decompose". Nor is it toxic, using the same term the bankers on Wall Street called the papers that ended up worth less than a goose egg. And while there continues to be a crisis in the world's stock markets, real estate in Colombia will remain a safe asset which will not decompose despite bad times.

Entradas populares de este blog

Lately I've had some interest in reading books about personal and spiritual growth and all those subjects of the so called “New Age”. Authors like Osho, "Papá Jaime" Jaramillo and Deppak Chopra (my favorites) are agree that the most negative incident or event you can think of, always will bring positives consequences. I bring up this thought, because it would seem that in the case of the Colombia real estate market, the news media, comments of ordinary people in the streets and the whole environment in general show some kind of paranoia that only leaves us look at the dark side of things.

Right now everybody is talking about global economic slowdown, recession in the U.S.; real estate crisis in Spain, and another series of events to which Colombia is not indifferent at all.

Well, our country after enjoying an economic boom over the past 4 years, in which the construction and real estate market contributed to a large extent, is beginning to show signs of slowing. But watch …